Who can forget the
neocons' claim that under their leadership America
creates its own reality?

Remember the neocons' Iraq
reality—a
"cakewalk" war? After three years of combat,
thousands of casualties, and cost estimated at over $1
trillion, real reality must still compete with the White
House spin machine.

One might think that the Iraq
experience would restore sober judgment to policymakers.
Alas, neocon reality has spread everywhere. It has
infected the media and the new Federal Reserve Chairman,
Ben Bernanke, who just gave Congress an upbeat report on
the economy. The robust economy, he declared, could soon
lead to inflation and higher interest rates.

Consumers deeper in debt and fresh
from their first negative savings rate since the
Great Depression show high consumer confidence. It
is as if the entire country is on an acid trip or a
cocaine trip or whatever it is that lets people create
realities for themselves that bear no relation to real
reality.

How can the upbeat views be
reconciled with the Bureau of Labor Statistics' payroll
jobs data, the extraordinary red ink, and exploding
trade deficit?

Perhaps the answer is that every
economic development, no matter how detrimental, is spun
as if it were good news. For example, the worsening US
trade deficit is spun as evidence of the fast growth of
the US economy: the economy is growing so fast it can't
meet its needs and must rely on imports. Declining
household income is spun as an inflation fighter that
keeps mortgage interest rates low. Federal budget
deficits are spun as letting taxpayers keep and spend
more of their own money. Massive layoffs are spun as
evidence that change is so rapid that the work force
must constantly upgrade skills and re-educate itself.

The denial of economic reality has
become an art form. Except for Lou Dobbs, no accurate
economic reporting is available in the "mainstream
media."

Occasionally, real information
escapes the spin machine. The National Association of
Manufacturers, one of outsourcing's greatest boosters,
has just released a report, "US Manufacturing
Innovation at Risk,"[PDF]
by economists Joel Popkin and Kathryn Kobe. The
economists find that US industry's investment in
research and development is not languishing after all.
It just appears to be languishing, because it is rapidly
being shifted overseas: "Funds provided for foreign-
performed R&D have grown by almost 73 percent between
1999 and 2003, with a 36 percent increase in the number
of firms funding foreign R&D."

US industry is still investing in
R&D after all; it is just not hiring Americans to do the
R&D.

US manufacturers still make things,
only less and less in America with American labor.

US manufacturers still hire
engineers, only they are foreign ones, not American
ones.

In other words, everything is fine
for US manufacturers. It is just their former American
work force that is in the doldrums.

As these Americans happen to be
customers for US manufacturers, US brand names will
gradually lose their US market. US household median
income has fallen for the past five years. Consumer
demand has been kept alive by consumers' spending their
savings and home equity and going deeper into debt. It
is not possible for debt to forever rise faster than
income.

When manufacturing moves abroad,
engineering follows. R&D follows engineering, and
innovation follows R&D. The entire economy drains away.
This is why the "new economy" has not
materialized to take the place of the lost "old
economy."

The latest technologies go into the
newest plants, and those plants are abroad. Innovations
take place in new plants as new processes are developed
to optimize the efficiency of the new technologies. The
skills required to operate new processes call forth
investment in education and training. As US
manufacturing and R&D move abroad, Indian and Chinese
engineering enrollments rise, and US enrollments
decline.

The process is a unified whole. It
is not possible for a country to lose parts of the
process and hold on to other parts. That is why the
"new economy" was a hoax from the beginning. As
Popkin and Kobe note, new technologies, new
manufacturing processes, and new designs take place
where things are made. The notion that the US can lose
everything else but hold on to innovation is absurd.

Someone needs to tell Congress
before they waste yet more borrowed money. In an
adjoining column to the NAM report on innovation, the
February 6
Manufacturing & Technology News reports that
"the US Senate is jumping on board the competitiveness
issue." The Bush regime and the doormat Congress
have come together in the belief that the US can keep
its edge in science and technology if the federal
government spends $9 billion a year to "fund
innovative, big-payoff ideas that have the potential to
transform the US economy."

The utter stupidity of the
"Protecting America's Competitive Edge Act" (PACE)
is obvious. The tremendous labor cost advantage of doing
things abroad will equally apply to any new
"big-payoff ideas" as it does to the goods and
services currently outsourced. Moreover, US research is
open-sourced. It is available to anyone. As the Cox
Commission Report made clear, there are a large number
of Chinese front companies in the US for the sole
purpose of collecting technology. PACE will simply be
another US taxpayer subsidy to the rising Asian
economies.

The assertion that we hear every
day that America is falling behind because it doesn't
produce enough
science, mathematics and engineering graduates is a
bald-faced lie. The problem is always brought back to
education failures in K-12, that is, to more education
subsidies. When CEOs say they can't find American
engineers, they mean they cannot find Americans who will
work for Chinese or Indian wages. That is what the
so-called "shortage" is all about.

I receive a constant stream of
emails from unemployed and underemployed engineers with
many years of experience and advanced degrees. Many have
been out of work for years. They describe the movement
of their jobs offshore or their replacement by
foreigners brought in on work visas. Many no longer even
know American engineers who are employed in the
profession. Some are now working in sawmills, others in
Home Depot, and others are attempting to eke out a
living as consultants. Many describe lost homes, broken
marriages, even imprisonment for inability to make child
support payments.

Many ask me how economists can be
so blind to reality. Here is my answer: Many economists
are bought and paid for by outsourcers. Most of the
studies claiming to prove that Americans benefit from
outsourcing are done by economic consulting firms hired
by outsourcers. Or they are done by think tanks or
university professors dependent on corporate donors. Or
they reflect the ideology of "free market economists"
who are committed to the belief that "freedom" is
good and always produces good results. Since outsourcing
is merely the freedom of property to act in its
interest, and since this self-interest is always guided
by an invisible hand to the greater welfare of everyone,
outsourcing, ipso facto, is good for America. Anyone who
doesn't think so is a fascist who wants to take away the
rights of property.

Seriously, this is what passes for
analysis among "free market economists."

Economists' commitment to their
"reality" is destroying the ladders of upward
mobility that made America the land of opportunity. It
is just as destructive as the neocons' commitment to
their "reality" that is driving the US deeper
into war in the Middle East.

Fact and analysis no longer play a
role. The spun reality in which Americans live is
insulated against intelligent perception.

American "manufacturers" are
becoming merely marketers of foreign made goods. The
CEOs and shareholders have too short a time horizon to
understand that once foreigners control the
manufacture-design- innovation process, they will bypass
American brand names. US companies will simply cease to
exist.

Norm Augustine, former CEO of
Lockheed Martin, says that even McDonald jobs are no
longer safe. Why pay an error-prone order-taker the
minimum wage when McDonald can have the order
transmitted via satellite to a central location and from
there to the person preparing the order. McDonald's
experiment with this system to date has cut its error
rate by 50% and increased its throughput by 20 percent.
Technology lets the orders be taken in India or China at
costs below the minimum wage and without the liabilities
of US employees.

Americans are giving up their civil
liberties because they fear terrorist attacks. All of
the terrorists in the world cannot do America the damage
it has already suffered from offshore outsourcing.